The government on Friday cautioned people against the risk of virtual currencies, saying they are not legal tender and do not have any regulatory permission or protection in India.

In one of the sternest warnings by the authorities, the government said virtual currencies are not backed by government fiat. The caution comes against the backdrop of a surge in interest in such instruments, fuelled by astronomical returns in recent days. “These are also not legal tender. Hence, virtual currencies are not currencies. These are also being described as ‘coins’. There is, however, no physical attribute to these coins,” a government statement said.

“Therefore, virtual ‘currencies’ (VCs) are neither currencies nor coins. The government or RBI has not authorised any VCs as a medium of exchange. Further, the government or any other regulator in India has not given licence to any agency for working as exchange or any other kind of intermediary for any VC,” it added.

The statement said there has been a phenomenal increase in recent times in the price of VCs, including Bitcoin, in India and globally. It said VCs don’t have any intrinsic value and are not backed by any kind of assets. “There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes,” the statement said.

Elaborating on the way these currencies are traded, the government said they are stored in digital, electronic format, making them vulnerable to hacking, loss of password, malware attack, which may also result in permanent loss of money. “As transactions of VCs are encrypted, they are also likely being used to carry out illegal/subversive activities, such as, terror-funding, smuggling, drug trafficking and other money-laundering acts,” the statement added.

The government said users, holders and traders of VCs have already been cautioned three times, in December, 2013, February, and December by the RBI about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to by investing in Bitcoin and/ or other VCs.